Remember 1986? It was the era of President Ronald Reagan in the White House, Madonna’s “Papa Don’t Preach” on the music charts, Top Gun in the movie houses, IBM’s PC Convertible debuting as the first laptop computer, and groovy guys everywhere wearing suede jackets. It was also when three of today’s biggest sign franchisers – FASTSIGNS International, Signarama and Signs Now (forerunner of Image360) – were born.
From that mutual starting point, all three have grown into substantial players in what was traditionally more of an independent, mom-and-pop business. (For details on the size of each franchiser today, see below). Before delving into the specifics of the challenges and opportunities facing this sector of the signs market, a brief description of franchising is in order: It typically involves individuals paying a company for the right to market a branded product or provide a branded service, often for a specified geographic area. In addition, the franchiser typically aids its members in starting and operating their locales.
To take the pulse of the sign industry’s franchise sector, Signs of the Times asked executives at Signarama, Fastsigns and Alliance Franchise Brands’ Sign & Graphics Division (which supports the Image360, Signs by Tomorrow and Signs Now brands) to weigh in on the near-term outlook for their businesses and their franchisees; best strategies for dealing with a downturn that all agree will come one day; how the pace of technological change is impacting their members; advice for passing a franchisee on to either the next generation or an outside party; and what other pressing challenges they face.
WEATHERING A SLOWDOWN
When it comes to the immediate future, the execs are upbeat, using such adjectives as “strong,” (Catherine Monson, CEO, Fastsigns, Carrollton, TX); “positive” (Ray Palmer, president of Alliance Franchise Brands’ Sign & Graphics Division, Middle River, MD) and “flourishing” (A.J. Titus, president, Signarama, West Palm Beach, FL). However, all believe that a slump will eventually happen, though Titus feels franchisers will harbor few worries when that happens. “We serve so many industries in our business that we are fortunate in that we can shift our focus depending on where the market drive is,” he said.
Similarly, Monson said her company believes its franchisees are better-positioned for a slowdown because its centers are also providing a broader range of products and services across more industries than they did during the recession a decade ago. “In a recession, our efforts will focus on helping the customer grow their revenue with signage and visual graphics, which remain a relatively inexpensive way of advertising compared to other types of ad or marketing efforts,” Monson said.
Still, Palmer believes it’s a good idea for franchisees to take some nuts-and-bolts steps in anticipation of a slowdown, such as keeping a weather eye on all key performance metrics. “It’s critical that their financial records are complete, accurate and up to date. Watching inventory levels, making wise investments with demonstrable ROI, and managing key cash areas like cost of goods, accounts receivable and payables, are all crucial,” Palmer said. “While these should be everyday activities in the normal course of business, they become critical during a down cycle.”Advertisement
In addition to riding out economic ups-and-downs, signage franchisers and their members – like virtually all businesses these days – must deal with constantly changing technology. Palmer is upbeat about fresh development situations, though, noting that they can “open new doors” for his company’s franchisees and stressing the need to think beyond signs, graphics and displays. “Environmental and experiential graphics are an exciting new area, as are digital and electronic signage,” Palmer said. “The traditional sign segment is seeing margin compression due to the number of new entrants into that space. However, there are huge growth opportunities in some of these newer areas which can continue to bolster the bottom line for our center owners.” That thought is echoed by Monson, who said, “from a technology perspective, our expanded products and services include interior décor as well as digital signage, along with wayfinding, content for digital signage and training our graphic designers on motion graphics.”
Changing technology can also have a major impact on the physical plants of some franchisees; advanced equipment has a larger footprint and higher facility requirements (power, air, etc.). “This has required some of our larger franchise members to move into bigger spaces, often in light industrial areas,” Monson said. “While there is increased cost due to such larger square-foot requirements, this is more than offset by the production efficiency of the facility. Being able to produce more at less cost is a key growth strategy for these members.” While Titus agrees that changing technology can translate into the need for more space, it “also allows franchisees to outsource some vendors, which allows for a smaller footprint. Ultimately, the franchisee must decide which course serves their business best.”
SUCCESSION AND DIVESTING
A reality facing longtime franchisees is figuring out how to pass the business on to the next generation or to a third party. Palmer offered an interesting strategy: work backwards. “It can take a minimum of 2-3 years to properly prepare a business for sale. Maximizing the value of your center depends on everything from how it looks, to how it operates, and most importantly, how much profit it produces,” Palmer said. “Most banks want to see at least 2-3 years of financials and tax records, and that will all have a big impact on the price you can command in the market. Beyond that, put on a new coat of paint, clean the center up, streamline your operating processes, make sure key personnel are happy and sharpen that bottom line.”
Titus’ advice is to always be thinking about what you can do to add value to your business. “We always recommend that our franchisees stay up to date with software and technology,” he said. “If and when you’re ready to sell the business, having the best-of-the-best will be an enticing selling point.”
To end our talks with these leaders, we asked them to weigh in on any other major topics of concern. Monson pointed to two factors: labor shortages and price increases for materials. “Today, it’s a challenge for everyone in any industry to find and keep good employees. To help our franchisees overcome that labor shortage, we recently launched an effort through the careers section on fastsigns.com to help franchisees communicate how Fastsigns is a great place to work,” she said. “We also provide extensive training tools and resources to our franchisees to help them develop their team members, including ‘gamified’ training where franchisees’ employees get educated playing short-burst games on their smartphones.”Advertisement
Beyond that, Monson notes that franchisees are also dealing with continued price hikes on substrates, inks and other items they use daily. “Our supply-chain team works hard to reduce the prices our franchisees pay; with our buying power, we’re able to have a significant impact on that,” she said. “But it also means, as applicable, increasing the price of the products they make and sell to the end user.”
Palmer reiterated his earlier concerns about growing competition. “Much of that is coming from similar industries, printers being a primary one, who are rapidly entering the sign and graphics industry,” he said. “Online providers also continue to take market share. Margin compression is a serious issue for many sign companies as they seek to compete in this ever-changing environment. However, with the newer market segments that are emerging, clients value their relationships with their graphic providers. Cultivating those ties and capitalizing on the business it can drive keeps our centers growing and maintains profit margins for long-term sustainability.”
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